About: Diana Fitzpatrick

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Payroll Tax Cut Extended For First Two Months of 2012


The two percent payroll tax cut for employees that was in effect for 2011 has temporarily been extended until the end of February 2012. Under this measure, employees pay a reduced 4.2 percent of Social Security tax withholding on wages instead of the usual 6.2 percent. It has no impact on employees’ future Social Security benefits.

Employers must make the change to the reduced payroll tax rate by January 31, 2012 at the latest. If any employee’s Social Security tax is withheld at the higher rate in January, the employer has until March 31, 2012 to adjust that employee’s withholding so that the total withholding amount is correct for that period.

For more information, see the IRS website at http://www.irs.gov/newsroom/article/0,,id=251650,00.html.

2012 Business Standard Mileage Rates Announced by IRS

The Internal Revenue Service announced the 2012 optional standard mileage rates for calculating the deductible costs of operating an automobile for business purposes. Starting January 1, 2012, the standard mileage rate for the business use of a car, van, pickup, or panel truck will be 55.5 cents per mile for miles driven. This rate is the same as the the rate that went into effect on July 1, 2011. Taxpayers can choose between the standard mileage rate or their actual costs to calculate their deduction for the business use of a vehicle.

California Passes Law Authorizing Benefit Corporations

California has passed legislation authorizing the creation of benefit corporations, also known as B Corps, a new class of corporations which are created to benefit society as well as shareholders. Unlike traditional corporations which are accountable only to their shareholders, these corporations must consider the impact their business decisions have on the community, environment, and employees as well.

In addition to maximizing profits for shareholders, benefit corporations must have a “material positive impact on the environment and community,” according to California Assemblyman Jared Huffman (D-San Rafael), who authored the bill. The benefit for these companies is that they obtain legal protection from shareholder suits for pursuing their social or environmental goals, which may not always be in line with shareholder financial interests. Another benefit is the potential access to capital these companies get because of their socially responsible mission. Benefit corporations must file a public benefit report each year assessing their social and environmental performance using objective third-party standards.

According to Jay Coen Gilbert, a B corporation advocate and co-founder of B Lab in Philadelphia, the California law provides these companies “with legal protection to pursue what some people perceive as a triple bottom line — creating financial profit as well as social and environmental impact.”

The California law goes into effect on January 1st. There are five other states that currently have similar benefit corporation laws–Hawaii, Maryland, New Jersey, Vermont, and Virginia. There is legislation underway to create benefit corporations in New York, North Carolina, Pennyslvania, and Michigan.

New Relief From IRS For Improper Worker Classifications

The IRS announced today that it would allow employers who have improperly classified workers to reclassify them as employees and make a minimal payment for past due unpaid taxes. Employers who voluntarily join and are accepted into the program would get a fresh start from the IRS with no further audit, penalty, or other IRS concerns related to the improperly classified workers. Many employers face the possibility of substantial federal payroll tax obligations for workers who should have been classified as employees but were treated instead as nonemployees or independent contractors. “This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

To be eligible, the employer must:

  • consistently have treated the workers in the past as nonemployees
  • have filed all required Forms 1099 for the employees for the previous three years
  • not currently be under audit by the IRS or any other agency concerning the classification of these workers.

To apply for the relief, you must file IRS Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before you want to reclassify your workers as employees.

The amount the employer will be required to pay is approximately 1% of the wages paid to the reclassified workers for the past year. No other interest or penalties will be due and no further audits for those workers will occur. Employers accepted into the program will be subject to a 6-year statute of limitations, rather than the usual 3 years that applies to payroll taxes.

For more information, see the IRS website at www.irs.gov.

IRS Clarifies Tax Treatment of Cell Phones Provided to Employees

The IRS issued guidelines today to clarify the tax treatment of cell phones provided by employers to employees. The Small Business Jobs Act of 2010 removed cell phones from the definition of listed property under the tax code. This meant that employer-provided cell phones were no longer subject to the more onerous record keeping requirements that apply to certain property defined as “listed property” under the tax code. However, the Act left unclear whether the value of cell phones provided by an employer should be included in an employee’s taxable income.

The new IRS guidelines provide that as long as a cell phone is provided to an employee for noncompensatory reasons—meaning primarily business reasons–the IRS will treat it as a tax-free working condition fringe benefit. The employer’s purpose for providing the cell phone must not be to give the employee additional income. So, for example, the employer could provide a cell phone to ensure its employee could speak with clients at any time or to be able to contact the employee anytime for work-related emergencies. In those circumstances, the value of the cell phone or any reimbursement to the employee for cell phone expenses would be tax free. However, if the cell phone was provided for the purpose of giving the employee additional income or to promote goodwill or attract employees, the employee would have to report the value of the phone or any reimbursement for cell phone use as taxable income.

 

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